What You Should Know About the Employee Retention Tax Credit
If the Employee Retention Tax Credit (ERTC) has been on your mind lately, you're not alone. Many companies are looking for guidance on how to unlock the ERTC to offset business losses.
The following chart shows how the ERTC has evolved, from how the ERTC functioned in 2020 under the Consolidated Appropriations Act (CAA), to how the ERTC functioned in 2021 (Q1 & Q2) under the CAA, to how the ERTC currently functions in 2021 (Q3 & Q4) under the American Rescue Plan Act*.
Beginning in the third quarter of 2021, the following modifications apply to the ERTC:
Applicable employment taxes are the Medicare hospital taxes (1.45% of the wages) and the Railroad Retirement payroll tax that’s attributable to the Medicare hospital tax rate. For the first and second quarters of 2021, “applicable employment taxes” were defined as the employer’s share of Social Security or FICA tax (6.2% of the wages) and the Railroad Retirement Tax Act payroll tax that was attributable to the Social Security tax rate.
Recovery startup businesses are qualified employers. These are generally defined as businesses that began operating after February 15, 2020, and that meet certain gross receipts requirements. These recovery startup businesses will be eligible for an increased maximum credit of $50,000 per quarter, even if they haven’t experienced a significant decline in gross receipts or been subject to a full or partial suspension under a government order.
A “severely financially distressed” employer that has suffered a decline in quarterly gross receipts of 90% or more compared to the same quarter in 2019 can treat wages (up to $10,000) paid during those quarters as qualified wages. This allows an employer with over 500 employees under severe financial distress to treat those wages as qualified wages whether or not employees actually provide services.
The statute of limitations for assessments relating to the ERTC won’t expire until five years after the date the original return claiming the credit is filed (or treated as filed).
Kruggel Lawton CPAs have experienced accounting professionals standing by to help you through this process. We are open to address all of your questions related to PPP and ERC. Contact us if you have more questions.